If 'Piracy' Is Killing Filmmaking, Why Do Nigeria, China And India Have Thriving Movie Businesses?

from the business-models-change dept

We keep hearing from Hollywood folks that "piracy" is killing the movie business, yet there seems to be little evidence of that. The number of films being made each year continues to grow, and the box office keeps setting attendance and revenue records. But what if unauthorized copies were even more rampant? Kevin Kelly noticed that three countries that are normally considered "hotbeds" of unauthorized copies all seemed to house the largest movie industries:

The three largest film industries in the world are India, Nigeria and China. Nigeria cranks out some 2,000 films a year (Nollywood), India produces about 1,000 a year (Bollywood) and China less than 500. Together they produce four times as many films per year as Hollywood. Yet each of these countries is a haven, even a synonym, for rampant piracy. How do post-copyright economics work? How do you keep producing more movies than Hollywood with no copyright protection for your efforts?

This question was pertinent because the rampant piracy in the movie cultures of India, China and Nigeria seemed to signal a future for Hollywood. Here in the West we seem to be headed to YouTubeland were all movies are free. In other words we are speeding towards the copyright-free zones represented by China, India and Nigeria today. If so, do those movie industries operating smack in the middle of the cheap, ubiquitous copies flooding these countries have any lessons to teach Hollywood on how to survive?

Not everything he finds will be considered a "good" thing -- since part of the answers involve things like underground markets and organized crime laundering money -- but that shouldn't take away from some of the key points. In all three countries, he found that (of course) the "pirated" versions (usually sold as video CDs) really acted as promotion for going to see the film in a theater -- one of the few places in those countries where air conditioning is available. Some might point out that this isn't an issue in the US (any more), but if you take a step back there is a larger point: if you provide a valuable experience, people will go. In Nigeria and India, it may be air conditioning, but in the US it could be lots of other things: high quality food, comfy seating, better sound, etc. Second, he found that the industries in all three countries made money by licensing their movies to TV stations who were desperate for content -- suggesting that there are almost always other channels where revenue can be obtained.

Another point that he found was that the movie makers recognized they needed to "compete" with unauthorized copies, and priced things accordingly -- so that the price wasn't all that different than the unauthorized VCDs. Now, that did mean that some of the movies produced in these countries were quite low budget -- but, again, if you combine a higher quality movie with a real reason to buy (see in the theater/additional benefits for buying) there's no reason why big Hollywood movies can't take advantage of the same economics. Of course, some will also point out that when the unauthorized copies are downloaded, rather than available on VCD, the "cost" of the competition then goes to zero -- which is true -- but none of that precludes offering additional scarce value for buyers. In these countries it may just be air conditioning, but there are plenty of scarcities that can be sold in the US as well.

Finally, filmmakers in those countries all seem to recognize that obscurity is a bigger issue than "piracy," -- in part because they have to deal with government censors. So they realize that getting the films seen is the biggest issue, and they can monetize on the backend by offering other types of scarce value.

Now, obviously, the situation in all three countries is not ideal. And, no, I'm not saying that the answer to Hollywood's fears is to follow down these paths directly (though, I have no doubt that someone will accuse me of saying exactly that). But the larger point stands: even if there is rampant piracy (much worse than is found here), the movie industry does not die, and can thrive. And it does so by finding alternative streams of revenue, combined with focusing on the scarce value that can be provided, combined with embracing the promotional nature of the unauthorized films. And, of course, part of the strategy involves actually acknowledging that unauthorized copies are part of the competition, rather than just thinking of them as something illegal that must be stopped.

No, the industries in these three countries are certainly not what Hollywood should be modeling itself on, but they do clearly show that the dire warnings from Hollywood are totally off-base.

same reson in 2005 - 2006

when piracy was peaked in Canada that sales of music were up 110%, and as they throttled and capped sales went down

people cant try before they buy , they just DON'T BUY
and if i cant afford it and tell my bud who might take his wife or friend or whatever to see a film then ive adverted your flick freely and word a mouth is always the most powerful advertisement

p2p is not about piracy, its about marketing, if you can't give something away free.....HOW would you ever sell it?

Re: same reson in 2005 - 2006

when piracy was peaked in Canada that sales of music were up 110%, and as they throttled and capped sales went down

people cant try before they buy , they just DON'T BUY
and if i cant afford it and tell my bud who might take his wife or friend or whatever to see a film then ive adverted your flick freely and word a mouth is always the most powerful advertisement

You are 100% right. Everyone - think to yourself...

how many CD's have you went out and purchased *BEFORE* you had heard anything on the CD?

Highest-grossing March ever. This doesn't, of course, not include revenue from DVD and other media - it's somehow against their business models to release information on how much of the supposed shortfall is being made up by their 16th release of Blade Runner or that series of straight-to-DVD movies they produced to cash in on their last hit. Even if said shortfall existed.

Also, we've been hearing stories about how Spain is being targeted for its relatively lax attitude toward personal file sharing (e.g. http://techdirt.com/articles/20100330/1518058792.shtml). Yet, the market here is not being addressed *at all*. The poor postal service has meant that while Netflix-style services do exist, they haven't really taken off. Streaming services are also thin on the ground, as you can see from the following screenshot;

The shot is taken from Blinkbox, one of the few streaming services I'm able to access (Netflix, Lovefilm, Hulu, BBC, etc. are all totally off-limits and AFAIK there's no Spanish equivalent).

Oh, the *free* movies are available to me. You know, the public domain & independent stuff I don't have to pay for. I'm only blocked from giving these idiots my money to stream a movie. But, if I choose to download the movie instead, I'm a "pirate", and its said "pirates" who are stopping them from taking my money...

This is quite similar to the approach Microsoft, Cisco, and other big software companies have taken when selling software in places like Thailand, where you can buy copies for pennies.
Rather than sell authorised software at Western prices, they reduce the price substantially - the thinking being that if someone actually wants to by a legit copy, the difference in price should not be an obstacle, hence you can buy proper DVD's for a fraction of the price you would in any Western store.
There's been measures to region lock the software, by various companies, but we all know how successfully that worked for DVD players..

Ever try to make a Hollywood film on a Bollywood budget?

Piracy isn't going to kill Hollywood, but it's going to kill the average cost per movie. Movies will have to get cheaper and everyone will have to take pay cuts. They don't want to end up making movies on the minuscule budgets that movies in China, India, and especially Nigeria are made on. Hollywood isn't making movies to entertain us. They're making movies to get rich.

That $200 million movie feeds a lot of people - actors, technicians, animators, publicists - whether it makes money or not. The $20 million that profits or is suddenly a big hit only makes money for the few people who get a percentage of the profit.

The good thing is that the only people left making movies will be the people that really care about making movie and will do it for pennies. A lot of people will have to lose their jobs before that happens.

Re: Re: Ever try to make a Hollywood film on a Bollywood budget?

Re: Re: Re: Ever try to make a Hollywood film on a Bollywood budget?

Both of those were exceptional cases of movies that cost way, way more than they had any right to make, but eventually made money. Despite what you may have heard, Waterworld made back its production budget with international sales even before factoring in TV rights, VHS & DVD. not a big money spinner, but it didn't lose money in the long run. it only has its reputation because it didn't manage to redeem its pre-release bad press like Titanic did.

The real question is whether or not these exceptionally expensive movies do or should represent the norm, and frankly they don't. Most movies are medium-to-low budget and represent far lower risk (albeit admittedly less reward).

According to boxofficemojo.com, 5 of the top 10 grossing movies of 2009 cost less than $100 million (and 3 of those cost $50 or less). Perhaps they should be asking why, instead of funnelling $300 million to Bay's next bloated opus to film expensive CGI slapstick scenes and robot piss.

Re: Re: Re: Re: Ever try to make a Hollywood film on a Bollywood budget?

Re: Ever try to make a Hollywood film on a Bollywood budget?

If every movie cost as much as Avatar, Hollywood would go broke quick, because most movies lose money. Avatar is an exception to the norm, which is why I mentioned the average Hollywood budget, which is probably around $70 million a film.

The point is those up-front costs are what gives everyone in Hollywood paychecks. The movie can bomb, but everyone has already gotten paid so it doesn't matter. If the movie makes money, most of that money goes to the studio for future films, to the producer, or to any actor or director lucky enough to get a cut of the profits. Those are the people taking the gamble that the movie will be a hit.

You would think that making a movie for $20 million means a greater chance for profit, but what it really means is fewer people working or getting paid less. Profits still go to the same few people. That's why Hollywood wants to make the most expensive movies possible. Each film is practically its own medium sized business.

This is what they talk about when they say piracy is killing Hollywood. Of course, I don't believe it is, and even if it were, I think Hollywood could stand a little downsizing. Spend your money on an indie movie instead.

You ever try to type with one hand?

Of course, some will also point out that when the unauthorized copies are downloaded, rather than available on VCD, the "cost" of the competition then goes to zero -- which is true -- but none of that precludes offering additional scarce value for buyers.

Don't forget that most people still value the "authenticity" of a copy as a scarce value. Most of people I know, when they can get a legitimate copy for even 2-3x the amount of a pirated one, they will often go the legit route because it's just the right thing to do. People are not amoral game-theory automatons. It's just that when they see a movie on sale for $40 and they see the profits of the movie studios compared to the amount they put out and the way they treat their customers... well, they're not likely to pay that $40.

The sooner industry moves away from the 80's-style "everyone is just a wallet" thinking and back to realizing that they've got real people who are customers, the better. The ONLY thing you have to do is treat your customers as people, as you would like to be treated, and they will follow.

If 'Piracy' Is Killing Filmmaking, Why Do Nigeria, China And India Have Thriving Movie Businesses?

i find it difficult to take this article serious, how do go about grouping Nigeria, India and China together in an analysis of piracy when they share more differences than similarities in their markets.

And then to go further and suggest that air conditioning is what attracts viewers to the cinema in places like Nigeria, and Hollywood should learn from this - shows a total disregard for the need to analyze issues intelligently and with a straight face. do i need to point out here you have a very primitive view of the world outside the US!

Piracy is the single most important existential threat to the film industry in Nigeira, the pirates make more money than the producers. and yes your are right when you say it drives down prices but the pirates respond by using available technology to squeeze 100 films on to one video cd, which in effect takes producers out of the game because that can't compete at zero return.

India has a more robust system of monetizing its film industry, nigeria dosesn't have the infrastructure to do so. Even tv studios are involved in piracy in nigeria, showing films without the permission of of the producer.

so were is the market? Nollywood is funded by grassroots entrepreneurship, not banks, not film studios or Tv. funding is solely from family and friends and you recoup your investment from the sales of your film but pirates hijack the films, drive down the price to push producers out of the market then profit unchallenged.

you need to educate yourself on the film industry in Nigeria, China and India as you quite rightly don't know what your talking about.

And by the way China should not be in your list because it is one country but two systems, so films from Hong Kong are not included in the statistics for china because it is a territory with different regulations and government - as such Hollywood produces more films than China!

Re: If 'Piracy' Is Killing Filmmaking, Why Do Nigeria, China And India Have Thriving Movie Businesses?

I agree with this, actually your saying that people in India go to theateres because of Airconditioning shows how ignorant you are about the world outside USA.

To correct you , India actually has the biggest movie industry in the world, Bollywood is just a section of the movie industry in India, in Reality each state in India have their own movie industry reason being they have 22 Official languages.

The reason is that in India there are various incentives by the government to protect the local movie industry , they give waivers for local movies and also the cost of going to movies is quite cheap compared to what is charged in the western world.

For example there is an Imax theatre in south India (which is actually the largest one in the world)where the cost of watching Avatar in 3d is 4$ . The cost of tickets for regional movies is 1/3 rd of this and in rural places it can even be 1/10 of this.

So to conclude I would say that the western movies actually charge way too much for their movies and for facilities which are actually not worth the price. This is one reason.

Re: If 'Piracy' Is Killing Filmmaking, Why Do Nigeria, China And India Have Thriving Movie Businesses?

You seem to have missed a few central points, so allow me to make a few comments here:

1. The air conditioning comment is based on something stated repeatedly in the linked article. Regardless, the central point - that legal suppliers need to make their product more valuable to consumers than "pirates" - is completely valid. That's what Hollywood are trying to do with 3D, in fact. If it becomes difficult to compete on price, compete on something else.

2. You say "Piracy is the single most important existential threat to the film industry in Nigeira" and "Nollywood is funded by grassroots entrepreneurship". Erm, yeah....? Again, the point is something that you're missing - that Nigerian producers are finding ways to thrive despite having far worse levels of *actual* piracy (as opposed to file sharing) than the US (and the industry only having existed for half the time).

Yet, Hollywood keeps trying to tell us that pirates will inevitably lead to far lower numbers of films being produced. There's a disconnect there. The central point here is that Hollywood's excuses are not being proven by markets with higher piracy rates.

3. "China should not be in your list because it is one country but two systems"

I agree that China is much harder to quantify, not only due to the large HK film market and its presumably different levels of piracy, but also import controls placed by the Chinese government. However, it is still valid - the country has much higher levels of piracy but still produces a huge number of films. They must be making a profit somehow, and that's what the Hollywood studios need to learn from.

"as such Hollywood produces more films than China"

That completely depends on how you quantify "Hollywood" as well as how you depend on "China". To make such a statement, you probably need to provide some evidence.

I am in india (indian too) and the only reason why I went to movie halls after 2 years is because of 3d (avatar and other movies lined up with 3d versions) which is an experience you may not (not in the near future) not get with your pirated camrip, TVrip, DVDrip or any kind of pirated media.
I've seen every single movie rated above (english, chinese, japanese, thai)6.9 in imdb and I have seen most of the in Blueray(1080p) which I download from torrents. Then I download the dvdrip version (which is a dvd like quality with 700mb or 1.36gb size)for storing favourite movies. I have downloaded hundreds of Terrabytes of data (movies and softwares) just like my friends and I have seen that only because of piracy I switched from bollywood to hollywood(india produces maximum number of movies when you combine bollywood+kollywood+tollywood+sandalwood+and other indian language movies) and after this free downloading and watching I developed a taste for hollywood and now If i ever go to theatre its only because of hollywood

Re:

Just a few questions . . .

How do you store hundreds of terabytes of data? Do you own a server farm?
What type of connection do you have that facilitates that kind of speed?
How many friends do you have "just like you"?
How many films exactly are above 6.9 on IMDB?

Good, maybe soon we'll get lower cost movies from these places with multiple movies on a single CD to increase the value of what we pay for.

Hey - I snagged some low budget Martial Arts videos from a Chinese producer a couple months ago at a thrift store. They were new videos @ a buck each - what did I have to loose?

The quality and dubbing left a lot to be desired. The packaging was cheap, but the story - while a bit 'out there' was good enough and it was more entertaining, even if just from a comical standpoint than half of what Hollywood's puked out in the last 10 years.

Would I buy more of them? lol, yep.

Will I buy $19.99 DVDs? lol, no thanks.

Just not worth that much, to be honest. I'm patient, I'll wait for it on TV or buy a used copy somewhere. DVD's will scratch at some point, so used/new - doesn't matter. Anymore the first thing I do witha DVD when I get it, is rip it, the convert to digital and re-burn on a DVD, usually compressing 4 onto a disc.

I'm not all bent up on HD yet - still too costly.

I like movies and all, but there's a limit of what they are worth. For the cost of 3 movies over a weekend, new on DVD - I can find something better to do.

Re:

DVDs are ridiculously in many places where I live in Spain, and the postal system is atrocious. So, I've given up on buying DVD for the most part, except for the 2 or 3 times a year I go to the UK (visiting friends/family or attending movie festival).

While there, I always make an effort to get as much as I can from some of the major retailers, who sell DVDs between £1 - £5 (approx $1.50 - $7). Not new releases, of course, but I have bought many DVDs that I would never have bought if they were more expensive. However, I still buy and spend less than if affordable downloads were available or if a streaming service was accessible to me...

'Post-Copyright' business model? How about 'Pre-Internet'?

These are all places where 'piracy' doesn't mean 'Torrents', it means 'physical CDs'. No, not DVDs, mind you (too expensive), VCDs. And forget streaming broadband. In the muddy season, simply getting the electricity to say connected for more than four hours straight is a more realistic concern.

This means that all the markets profiled by Kelly are outside the sphere where 'the number of copies can be infinite' (in theory or practice), and placed firmly in the zone where the value of a copy is still a positive number. There's nothing futuristic about that. To the contrary, it's where Blockbuster was seven years ago.

Meanwhile, the fundamental business model for all media anywhere remains relentlessly intact. (Sorry, Unicorn Hunters, there's no "new" model to be found.) Nothing about digital media or the emergence of the internet has altered the essential fact: when it comes to intangible goods, audiences have never, and will never pay for the goods themselves (that's the patron's role). What they do pay for are the wrappers in which those goods are delivered.

That could mean a ticket for a theater seat, an LP record, or a new TV. Whatever, it's all wrapper. For a producer / patron, this means one thing only - make stuff people like, and keep your costs lower than whatever price the wrapper makers are willing to pay you directly.

To simplify even further; buy low and sell high to someone who returns your calls. Seriously, that's it. So stop with the unicorn hunt. There are no 'new models to discover', and you're just wasting your time if this is what's holding you up.

If you're feeling the pinch and you're an author or an artist, you need to be looking for reliable new patrons. If you're a patron, you need to be looking for new distribution partners. And if you're a distributor, you need to be offering something more interesting, exclusive, and worthwhile than a broadband connection attached to a 60" 1080p HDTV (unless you're in someplace like Nigeria, in which case, you're now a theater operator, charging people for fuel in the generator + a satellite down-link).

In other words, if you make a living from intangible goods, you don't need to be focused on your business model. You need to be focused on your business itself. And the internet changes nothing fundamental. No matter who or where you are, and no matter how big or small, the rule remains the same; if your output exceeds your income, then your upkeep becomes your downfall.

Provided you know your basic role (author/artist, producer/patron, or wrapper-maker extraordinaire), you're in a position to work well with others who share the same level of clarity. And if all of you can keep your costs in line while making something that can't be had elsewhere for free, then you'll have successfully adapted your business to the one and only model you'll ever see.

It's not your model, it's your plan.

Maybe talking about 'business models' is a mistake, at least when it comes to copyright-protected companies. How many of these conversations would be more illuminating if people asked "what's your business plan?

A model describes how anyone can make money. A plan describes how you–in particular–will make money.

If I'm investing in an early-stage startup–one so fresh that everything is being built from scratch–then the basic model is very important. In fact, I'd say forget about a business plan, since it's a batch of variables that are sure to change. Focus on simply making money, period, and save the planning until you know you've got a leg to stand on.

But if I'm looking at an established company, or a new provider of a well-defined proposition, the model is no longer a question. This is where an actual plan is what truly matters.

If I were investing in major media companies, I wouldn't be asking about their model. I understand the model. I'd be asking how their model's assumptions were holding up, and how they were going to deal with changing projections.

When it comes to established publishers, the real issues is that they have no plan to lower their costs far enough to compete with companies using the same model, but with a much better set of assumptions, along with operations and cashflow projections to match.

The secret is crime

What struck me was the fact that these "success" stories wouldn't exist without crime.

Here are three excerpts from the article.
______________

NIGERIA In addition the financing of films in Nigeria is closely aligned with the underground economy. Investing in a film is considered a smart way to launder money. Accounting practices are weak, transparency low, and if you are a thug with a lot of cash “to invest” you get to hang around movie stars by bankrolling a film. In short the distinction between black market disks and official disks generated with black market money is slim.

INDIA Bollywood and mafia money are famously intertwined. In terms of money laundering, tax-avoidance, and covert money flows, the entire film industry is a gray market. The behind-the-scenes people making illegal copies of films also make the legal copies. And prices for legit and pirated versions are almost at parity.

CHINA Big budget films are subsidized by the government, and live off theatrical release. In fact getting screen time in theaters is heavily politicized. Independent films can’t get booked in the limited number of theaters, so they get to their audience on optical disks. And if a viewer wants to watch a film not produced by state-sponsored studios they have to find one on the streets.

Re: Re: The secret is crime

Do you know the history of Hollywood? It wouldn't exist without crime either.

Yes, I know. Perhaps the problem in the US is that we've tried to clean it up. Bring back investors who want to hide money and take it off the top, and have illegal activities promote a thriving gray and black market on the street. It works for Nigeria, India, and China.

The point of the article was these film industries do just fine with piracy, but I took away that these film industries do just fine because of crime.

Something isn't adding up here...

While I agree with the main point of the story, something in the quote isn't adding up...

The three largest film industries in the world are India, Nigeria and China. Nigeria cranks out some 2,000 films a year (Nollywood), India produces about 1,000 a year (Bollywood) and China less than 500. Together they produce four times as many films per year as Hollywood.

So if India, Nigeria, and China produce 3500 movies a year (2000+1000+500) and Hollywood produces one fourth as many, which is 875, then isn't the U.S. the third largest film industry in the world?

The only people who would want Hollywood to resemble these other industries are 1) counterfeiters 2) money launderers 3) masochists 4) freeloaders and 5) Silicon Valley nerds who pray to the altar of aggregation, all hail google, amen...

The number of films being made each year continues to grow, and the box office keeps setting attendance and revenue records.

Any citation for these supposed "attendance" records you've seen broken recently? I can't wait to see your evidence! I'll just be over here, NOT holding my breath...Also keep in mind that the revenue records are only records if you ignore inflation. Titanic sold a hell of a lot more tickets than Avatar did and Gone with the Wind sold a hell of a lot more tickets than Titanic did.

Second, he found that the industries in all three countries made money by licensing their movies to TV stations who were desperate for content -- suggesting that there are almost always other channels where revenue can be obtained.

Wait, I thought you didn't like the concept of IP licensing? After all, why should some enterprising business man have to pay the content creators for their infinitely reproducible work? Fuck 'em! Why not do what they do in Nigeria just use whatever they want without permission, filmmakers be damned?

Now, that did mean that some of the movies produced in these countries were quite low budget

"Some" he says...what a joke.

But the larger point stands: even if there is rampant piracy (much worse than is found here), the movie industry does not die, and can thrive.

"Thrive" is the wrong word. "Languish" would be a better choice.

No, the industries in these three countries are certainly not what Hollywood should be modeling itself on, but they do clearly show that the dire warnings from Hollywood are totally off-base.

They clearly show the opposite. Hollywood moving to resemble any of these other film industries would be very dire indeed.

it still astonishes me how anyone can say with a straight face that piracy is the best thing that ever happened to the film industries in NIgeria, India and China and even more ludicrously suggest America should follow such.

This is miss information on an industrial scale... India and America have been able to survive piracy because they have a developed & diversified revenue channel for their filmmakers but Nigeria doesn't, their main source of recouping their investment is through the sale of video CDs which are what pirates exploit.

And to then suggest that air conditions is what attract people to the cinemas or is the one place were air conditions are available is shallow and disdainful and says alot about your view of the world.

its one thing to have a robust debate that enriches every participant and another thing to have a debate that celebrate one's foolery in attempting to articulate an issue and invite people to indulge themselves... this article represents the latter.

As editor of the leading Online film publication dedicated to African Cinema, i can confidently say there is no room for such 'sarah-Palinist' analysis of issues in a serious robust debate.

piracy

When I was a computer game programmer, people talked about piracy. I did not see stealing my games as a bad thing, but as free advertising, which is interesting as most of my customers were not under 15, but over 50. Teens have much time, but little money. That is why they download programs.

piracy

Ignorance must be blissful indeed, otherwise I cant see any other reason for the position taken by this writer. Nigerian movie industry is battling to stay alive, piracy has been killing the industry slowly but surely. Investors are reluctant to invest anymore, nobody enjoys losing hard earned money. the government policy is rather weak against piracy. producers and marketers are fighting to stay in business. In conclusion, all that glitters, definitely isn'y gold.

IP is intangible. The average person doesn't care. He does not care if someone will lose money, because there is a multitude of ways someone can acquire some.

Personally, I do not sympathize or empathize with corporations or industry. While they may have similar legal rights as humans (Because some self-elected authoritarian has deemed it so for reasons practicle to him, his lobbyists or otherwise), I would not shed a tear if one were to die. Life would go on.

The three largest film industries

I thought the three largest film industries in the world are in India, Nigeria, and the US? Don't Hollywood produce over 600 movies per year? Though film-making in China is on the rise, their output is still suggestively lower than that of Hollywood.

In support of Nollywood, in the very near future; the amount of movies produced per year will be cut down and more effort will be directed towards producing high quality films with great stories.